The following is an in-depth explanation of the importance of starting the legal process by first reaching out to a law firm that specializes in collecting debts for assistance with your lawsuit. Suing a Massachusetts company that’s in bankruptcy requires adherence to some very specific procedures, even though the core process of suing remains somewhat similar to most other lawsuits. Bankruptcy introduces additional court oversight at the beginning and the conclusion of the case. That’s why it’s crucial to understand the applicable rules, as failing to comply may result in losing the right to pursue legal action or even facing contempt of court charges. So, if you’re planning on suing a company that’s in bankruptcy, or even if you’ve already sued one that then filed for bankruptcy, you need a seasoned law firm that fully understands bankruptcy. Even if you have another lawyer, you should consider hiring a debt collection law firm
to ensure your case follows all of the required bankruptcy procedures, giving you a better shot at successfully collecting the debt in question.
With over fifty years of combined collecting experience, they offer clients the expertise, know-how, and means to successfully collect the money that’s owed to them. They also believe in treating each and every client with the respect that they deserve. They’re always responsive to their client’s questions and concerns. They also understand and appreciate their clients’ responsibilities and challenges in running their respective businesses. So, if your business happens to be owed money, they can help.
Suing a Company That’s Already in Bankruptcy
If you’re targeting a company for your lawsuit that has already declared bankruptcy, you’ll most likely need to file an “adversary proceeding” in bankruptcy court. While these cases may have certain similarities to other lawsuits, there are some very important procedural differences, such as the rules for filing and serving the initial complaint. Trying to file a civil case outside of bankruptcy court requires special permission. Consulting a law firm that specializes in this area is always a good idea when filing your lawsuit, however, it’s absolutely essential when the company you’re suing is already in bankruptcy. To help you understand all of this, an overview of what’s involved when suing companies in Chapter 7 or Chapter 11 bankruptcy could help.
Chapter 7
A company entering Chapter 7 bankruptcy is usually undergoing a shutdown and using the bankruptcy process to systematically dispose of its assets and conclude its business. In a Chapter 7 case, a bankruptcy trustee takes charge of matters, collecting and liquidating assets to pay any creditor claims. The trustee then becomes a party to any legal action and makes all litigation decisions on behalf of the bankruptcy estate. The debtor company, its officers, and stockholders relinquish control over the company’s affairs, which includes any ongoing litigation, although the company’s officers are still required to cooperate with the trustee.
Chapter 11
When a debtor company is planning to stay in business, it will usually file for Chapter 11 bankruptcy, which requires a debt reorganization plan. Should you initiate a lawsuit against them, then court approval will be necessary for any settlement. Due to the intricate nature of these adversary proceedings, it’s strongly advised to discuss the details with an experienced law firm that specializes in Massachusett debt collection procedures.
What is An Automatic Stay?
When the defendant company files for bankruptcy during an active civil lawsuit, an “automatic stay” takes effect, halting the proceedings. This court order prevents creditors from pursuing debt collection while the bankruptcy is underway. To proceed with the lawsuit, you must petition the bankruptcy court to lift the automatic stay by offering a valid legal basis for it. Ignoring the stay and continuing the lawsuit without the bankruptcy court’s approval can result in legal repercussions that can adversely affect your case.
Jurisdiction: State or Federal?
Typically, civil lawsuits are initiated in state court, whereas bankruptcy proceedings occur in federal courts. Just because you initially filed your lawsuit in state court against a company doesn’t necessarily guarantee that it will stay there. Upon the company’s bankruptcy filing, the bankruptcy court has the authority to transfer the state civil case to a federal bankruptcy court. This transfer decision hinges on factors such as the nature of the case and how far along in the process it happens to be. For example, if the lawsuit involves financial claims or property rights that could impact bankruptcy creditor payouts, the court is likely to order the case moved to bankruptcy court.
However, there are certain exceptions to the rule. For example, when a matter is nearing trial or is already underway, the bankruptcy court will generally lift the automatic stay, permitting the litigation to continue in state court. This is primarily to prevent the significant cost of restarting the proceedings all over again. In addition, if a state civil case’s outcome will not affect the bankruptcy case, then the court will probably allow it to proceed. For instance, in a personal injury lawsuit against the debtor’s insurance carrier where the claim is within the insurance coverage limits, the bankruptcy estate won’t be at risk, and the case can continue.
If you’re facing a situation where your debtor has declared bankruptcy, contact our experienced attorneys at Massachusetts Debt Collection Attorneys today to ensure you follow the correct procedures and protect your rights.